Small Business Tax Deduction Checklist | Small Business Resources

Ben Franklin famously stated, “In this world, nothing can be said to be certain except death and taxes.” Without a doubt, most individuals and businesses alike don’t particularly enjoy paying for or filing taxes. Fortunately, if you run a for-profit small business, the expenses you incur in the course of the year are typically tax-deductible.

A tax deduction (or “write-off”) is an expense that you can deduct from your taxable income, meaning that the amount of the expense gets subtracted from your taxable income.

To be tax-deductible, a business expense must be both “ordinary” and “necessary,” according to the U.S. Internal Revenue Service (IRS):

• An ordinary expense is an expense that’s common and accepted in your business.

• A necessary expense is one that’s helpful and appropriate for your business.

Typical business deductions

• Advertising and promotion

• Business meals

• Business insurance

• Business interest and bank fees

• Cleaning and janitorial expenses

• Commissions paid to your sales staff

• Computers and software

• Depreciation

• Education

• Employee or client entertainment

• Fees for licenses, trademarks, and intellectual property

• Furniture and equipment

• Legal and professional fees, like the use of an accountant or tax professional

• Moving expenses

• Office supplies

• Shipping and postage

• Travel expenses, including airfare, tolls, and meals

Other potential business deductions

• The payment your employees receive for the services they perform for your business

• Charitable contributions to qualified organizations

• Child and dependent care expenses if you pay someone to care for a child or another dependent while you work

• Health care expenses, including insurance premiums, office co-pays, and the cost of prescriptions

• Rent, but only if it’s for property you use in your trade or business; if you have or will receive equity in or title to the property, the rent is not deductible

• Business interest expenses for the use of money you borrowed for business activities

• Federal, state, local, and foreign taxes directly attributable to your business

• The ordinary and necessary cost of insurance if it’s for your trade, business, or profession

Business expenses vs. personal expenses

In some cases, yes. It’s important to separate your business expenses from:

• Expenses used to figure the cost of goods sold

• Capital expenses (which are considered assets)

• Personal expenses (personal, living, or family expenses)

However, if you have an expense for something that is used partly for business and partly for personal purposes, you can deduct the business part. For example, if you have a home-based business, you may be able to deduct expenses for the business use of your home, including:

• Mortgage interest

• Insurance

• Utilities, like electricity and Internet

• Repairs

• Depreciation

You also may deduct car expenses if you use your car for your business. But, if you use your car for both business and personal travel, you must divide your expenses based on actual mileage. The deductible amount will depend on current standard mileage rates set by the IRS.

For more information, consult IRS Publication 535: Business Expenses.

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Thanks for reading our article. Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. See more small business resources or check your workers’ comp rate in 3 minutes.